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The Perverse Politics of Inflation

On Monday, Eurostat, the European statistical agency, released a preliminary estimate of euro area inflation for March, and it was a shocker: 8.1 percent over the preceding year, 0.8 percent — about 10 percent at an annual rate — for the month.

Europe’s preferred measure of inflation doesn’t correspond exactly to America’s Consumer Price Index, and when you use a comparable measure, U.S. inflation has generally been running even higher. But the bad European inflation news comes in the wake of modestly good or at least better U.S. news, so at this point it’s arguable that Europe has an inflation problem as bad as or worse than ours.

True, some economists argue that the U.S. inflation problem is more fundamental than Europe’s. I’ll get to that in a minute. But here’s the thing: Voters don’t care about economists’ estimates of underlying inflation; they care about the prices they pay, especially the prices of highly salient goods they buy on a regular basis. That is, voters aren’t saying, “Trimmed mean P.C.E. inflation is too high because fiscal policy was too expansionary.” They’re saying, “Gas and food were cheap, and now they’re expensive.”

And there’s truth to that complaint. But the lesson from Europe’s bad inflation report is that these are precisely the prices over which President Biden, or actually any president, has almost no control.

Take the case of prices at the pump. Gas prices in the United States have more than doubled under Biden; as of last week, they were about $2.40 a gallon higher than they were in the last week of December 2020. But gas prices in Europe have risen by almost exactly the same amount; actually, after converting from liters to gallons and euros to dollars, I estimate that pump prices in Germany rose $2.80 a gallon over the same period.

This common rise in prices is no accident: Oil is traded on global markets, so its price has risen by roughly the same amount everywhere. The same is true of major foodstuffs.

So when people say — as they do — that gas and food were cheaper when Donald Trump was president, what do they imagine he could or would be doing to keep them low if he were still in office? OK, he probably wouldn’t have supported Ukraine, might even have tacitly supported Vladimir Putin’s invasion, and if the Russian flag were currently flying over Kyiv, world fuel and food prices would be a bit lower than they are. But I don’t think buying lower inflation at the expense of Ukraine’s freedom is what Trump supporters have in mind.

Does this mean that Biden and U.S. policymakers bear no responsibility for inflation? No. While much inflation reflects global shocks to energy and food, plus special pandemic-related disruptions — who imagined that used car prices could play such an important role? — America probably has an underlying annualized inflation rate of 3.5 to 4 percent, up from the 2 percent norm. This underlying inflation probably reflects an economy that’s running unsustainably hot, which in turn partly reflects an overlarge fiscal package at the start of Biden’s presidency and the Fed’s failure (which I shared) to recognize the problem early enough.

On the other hand, overheating isn’t unique to the United States. While some economists believe that European inflation is almost entirely due to transitory disruptions — something many people, myself included, wrongly believed about the United States a year ago — my read of recent European data suggests that it has also seen a rise in underlying inflation, despite not having pursued U.S.-type fiscal expansion. Notably, even European prices excluding energy and food rose 3.8 percent over the past year.

In any case, as I already suggested, voters aren’t poised to punish Democrats for underlying inflation; they’re angry about gasoline and food prices, which no rational analysis would say are Biden’s fault.

So what can Biden do? From an economic point of view, the most important thing is his pledge not to lean on the Federal Reserve, to allow the Fed to do what it must to cool off the economy.

What about going after corporate price gouging? I’m much more sympathetic than most economists to the view — widely held by the public — that some companies are taking advantage of widespread price increases to further exploit their monopoly power. And I don’t think things like holding hearings on price gouging do any harm, as long as the Fed is allowed to do its job; that might even help a bit. But gouging is probably a small factor in overall inflation.

So should Biden officials be out there pointing out that the price rises bothering consumers most are global phenomena, not the results of U.S. policy? Yes, of course, not least because it’s the truth. And I hope media reporting will make the same point.

But the old line “If you’re explaining, you’re losing” surely applies. Democrats may be able to blunt the damage from inflation, but realistically they won’t be able to win the kitchen-table argument by November. For now, Democrats need to run on social issues — and against the threat the modern G.O.P. poses to democracy and basic American values.

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